Boutique manager makes its return to emerging territories

Private wealth backs fund of funds targeting emerging non-European markets, writes Jane Roberts

The ImmoFinRE Group has just raised a second emerging markets fund of funds Ex-DTZ partner Philippe Winssinger, and CEO Albéric Braas, who founded the Luxembourg-based manager five years ago, believe it is an attractive time to invest in emerging markets, “particularly those requiring meaningful foreign investment to develop modern real estate and infrastructure”, says colleague and investment head Elliot Glausiusz. “We believe we can achieve high risk-adjusted returns for our investors.”

The group’s first fund raised €85m and it has €115m of commitments for ImmoFinRE II from wealthy private clients, including chairman Winssinger’s own family office. The group’s management has committed €15m to the two funds. About half the investors in fund I, mainly from Belgium, the Netherlands and Switzerland, have invested in fund II, as have two UK family offices. In all, fund II has more than 50 investors.

Glausiusz says wealthy European private investors seem the natural constituency for the group’s style of co-aligned international investing, mainly in assets outside Europe. However, an attempt to attract pension funds to fund II flopped. “It’s difficult to find the kind of funds we invest in, which tend to be smaller and run by emerging managers,” says Glausiusz. “Few investors are willing to back those people; really big investors aren’t. The Dutch or Canadians, for example, are doing big club deals to put money to work. A swathe of mid-sized investors are focused on ‘safe’ assets or domestic markets.

“Institutions weren’t ready or willing. They don’t need to take the kind of risk we do to get returns – just a liability match. But we don’t think it is risky, as we invest in growing countries that don’t have big debt problems.” He admits the lower margins that larger, institutional fund managers can operate on was another issue. “Some of the big power- houses offer fee levels to institutional clients that seem unsustainable to us. We are totally real estate focused and can’t afford to do that.”

Fund II is close to 50% committed, with eight funds investing in Brazil, Mexico, Peru, Colombia, Dominican Republic, Panama, China, Macau, India and Turkey. They are a mix of secondary and primary investments to stagger cashflow and the target is a net 14% internal rate of return over eight years and a two times return on equity capital.

No rush to enter ‘hot’ markets

“Emerging markets can get quite ‘hot’ so you can’t just rush in, even if you think the fundamentals are great. There’s a big debate, for example, about Brazil, where there have been some big fund raisings and prices have risen, particularly Rio and Sao Paolo office rents. We made a secondary investment there in an existing fund with assets.”

in the US or Europe, where ImmoFinRE has found one investment its likes. A relatively high proportion (around a third) of fund I’s assets are European, bought in 2008 when assets were starting to look cheap.

Most of fund I’s 13 investments are performing well, Glausiusz says, apart from two, which will bring down the returns. “We have realised quite a few investments, in Brazil, India and China, and are starting to see money come back. We don’t think it will hit a 14% internal rate of return – more like 10-12%. Some China strategies are taking longer to come to fruition and one in Europe is looking less positive.”

The six-strong team doesn’t only pick local managers; fund 1 is also invested in pan- Asian and European MGPA funds. While $10m investments are “the sweet spot” for fund II, “we have done bigger deals where investors have come in alongside for more”.

While ImmoFinRE has had no trouble placing capital, Glausiusz says the funds market, the US apart, has shrunk greatly. “Some fund managers are capitulating; we’ve seen resignations, as people move on to other things. The market will get smaller.

“Core funds are being raised in Europe but the opportunistic market is very difficult. Managers that did fantastically well there will be a focal point and scoop up all the money, as Red Fort Capital did recently in India. It has a great track record.

“The US feels busier, more dynamic. I was there in April and there seem to be lots of funds raising money,” Glausiusz says. “Their market has recovered more quickly and domestic investors don’t have the same concerns about their economy as Europeans.”